Paying by direct debit to make you money.

DU05ZLE

I'm with EDF and pay monthly by direct debit, but pay my bill in full, I use their "Direct Debit Whole Amount Monthly" payment option. Instead of paying a fixed amount, set by EDF, each month to them I keep that amount in my bank current or easy access account (attracting interest for me) and on a fixed date each month I supply meter readings (online or on the phone) to generate a bill which gets paid in full 14-16 days later by direct debit.  Apart from me getting interest on my money and not giving it in advance to them, with the bill being paid in full each month I build up credit over the lean months for when it's needed over the heavy months and each month my account is clear. If I ever decide to leave EDF at the end of my agreement there's no faffing about over who owes what and waiting on payment. You have to manage this each month and if tariffs change adjust the amount you need to set aside to cover the costs. It works for me.    

EssexHebridean

You have to be INCREDIBLY focused on your budget for this to work - for someone who isn't disciplined enough to set the relevant amount of money (ie 12/th of your annual expected energy costs, plus 10% extra for contingencies like price rises or a cold winter) aside to start paying this way is an incredibly quick route into debt. 

[Deleted User]

As EH says, how easy would it be to use that money in the summer months for something else - another emergency bill perhaps, or a bit of extra discretionary spending, and then get dumped into debt in the winter.

I don’t think it’s worth the pennies in interest to take that risk.

Astria

Deleted_User said:

As EH says, how easy would it be to use that money in the summer months for something else - another emergency bill perhaps, or a bit of extra discretionary spending, and then get dumped into debt in the winter.

I don’t think it’s worth the pennies in interest to take that risk.

True, £500 credit even at 3% would be about £1/month in interest.

That said I've done it before and it was fine for me, but then all of a sudden when my tariff changed I was moved back to budget direct debit, not going to complain about it though (not worth the hassle) as long as I don't build too much credit over winter.

Xbigman

EssexHebridean said:

You have to be INCREDIBLY focused on your budget for this to work - for someone who isn't disciplined enough to set the relevant amount of money (ie 12/th of your annual expected energy costs, plus 10% extra for contingencies like price rises or a cold winter) aside to start paying this way is an incredibly quick route into debt. 

I don't think the word incredible is necessary, especially highlighted in capitals. This is budgeting at its most basic. Anyone who makes any attempt to budget should not have any difficulty sorting this out. For people who have never bothered to read their own meter and are clueless about their usage then, yes, its going to be hard to implement because of the total lack of any data to start with. In that case assume the worse and over allow on costs. After a few years experience it gets much, much easier. 


Darren

GlasgowExpat2

I’ve always had a separate bank account and transferred a set amount every month to cover my gas, electricity, water rates and car insurance. I know how much gas I used last year and have calculated this year’s charges based on the new rates. When I hear some of the stories of people’s direct debit amounts I’m shocked. 

ariarnia

this month we got £3.30 in interest from ovo (4% going to 5% next year). soon bank accounts might beat that but for now its better than our current account AND we don't have to worry about an unexpectedly high bill one month. 

ariarnia

i'm guessing that would depend on what time of year you changed your payment methods (so if it was right at the end of the heating season you would have more cash in your account for longer to gain interest)

ariarnia

TransmitThis said:

Deleted_User said:

I actually have to disagree with this post entirely.

Is your supplier really going to let your account go into arrears All Year and over £200 for 6 months

without reviewing and then increasing your DD?

lots of people do. several suppliers review dd levels every 6 months and set them so the account should be at 0 at the end of the year. so it depends on when your year with the supplier starts (summer or winter) as to if for most of the year you will carry a credit or a debit. 

Section62

TransmitThis said:

Is your supplier really going to let your account go into arrears All Year and over £200 for 6 months

without reviewing and then increasing your DD?

I've been in deficit with my current supplier since December 2020 when I was switched to them. The deficit topped out at ~£300.  Until the October 2022 cap increase, the only DD review they did said my monthly payments were just fine, when it was quite obvious they weren't.

I've only stopped that this month because Santander are paying 4% cashback and it makes sense to max out my energy DD this month and next to get the most benefit from that offer.  That wouldn't be possible if I was paying on variable monthly (billed), I could only pre-select the DD amount when making a budget payment.

If we are discussing "Paying by direct debit to make you money" then it is the cashback options we should be talking about - even in the cases where it works, the OP's scheme is arguably not making money, just limiting the amount you lose.  The DD cashback methods are the ones where (in principle) there is the potential for a net gain - and the potential gain is maximised with higher DD amounts.

casjen

There's no risk whatsoever in doing whole month DD. Calculate your next 12 months cost, ring  fence that amount each month as you add to it and then pay the bill out of it. Childs play. If you are stupid enough to spend  it then more fool you. Even a 5 year old could cope. People really don't have a clue these days.